high-frequency trading

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high-frequency trading

Buying and selling large quantities of stocks in split seconds, and making pennies or fractions of a penny per share. High-frequency trading (HFT) is performed entirely by computer algorithms that look for and take advantage of small price discrepancies of the same stock on different exchanges. HFT computers are constantly bidding and offering 100-share lots of thousands of different stocks to determine moment-to-moment prices. In addition, traders can spoof the market by placing large sell orders, cancel them milliseconds later and immediately buy the stocks at a lower price, which they caused by injecting negativity into the market.

High-frequency traders are competing with other high-frequency traders all day long. In order to profit, the buys and sells must be executed immediately, and the shorter transmission pathways between orders and executions make the difference. To speed up the process, high-speed traders locate their computers within the same datacenter as the stock exchange computers or as close by as possible. In the most extreme example, a fiber optic line was laid from New Jersey to Chicago in the straightest line possible in order to shave nanoseconds from the travel time. The futures exchange is in Chicago, and New York-based stock exchanges have their datacenters in New Jersey.

Extremely Controversial
Proponents claim high-frequency trading is simply an advanced form of algorithmic trading like all the other widely used financial formulas. High-frequency traders also claim their systems make a more uniform market and have a stabilizing effect.

Opponents claim HFT is downright deceitful, turning money making into software that executes 99% of its trades with a profit. They claim high-frequency traders make billions per year without contributing any value to anyone but themselves. In the Flash Crash of May 6, 2010, when the Dow swung 1,000 points within minutes, regulators reported that high-frequency trading exacerbated market volatility after the sale of unusually large futures contracts. Had the event occurred at a different time of the day, the effects might have reached around the world. As a result, opponents assert that high-frequency trading could turn the market into greater bouts of chaos in the future.
References in periodicals archive ?
Michael Coscia, a high-frequency trader, was fined $903,176 ([pounds sterling]597,993, E696,491) by the Financial Conduct Authority (FCA) for manipulating commodities markets.
Last October, Rochford entered an injunction against Malyshev and Jace Kohlmeier, another former Citadel high-frequency trader, barring them from working on their new business, Teza Technologies, until their non-compete agreements expired.
Unfortunately, high-frequency trader interaction with computerized algorithms of large-cap financial institutions is providing opportunities for high-speed, virtually undetectable market manipulation.
a high-frequency trader that has earned money every day but one for five years, prepares for an initial public offering.
trading venues with orders, and near-immediate execution for investors -- even if the high-frequency trader on the other side of the trade walks away with one-tenth of a penny per share, on average.
Adding ammunition to the high-frequency trader toolkit, FPGA, GPUs and enhanced technologies
Yes, Senator Kaufman had a point, strengthening the monitoring of not only high-frequency, algorithmic or electronic trading but trading in general; Bernie Madoff was certainly not a high-frequency trader.
For example, if an investor now wants to sell a block of stock, the high-frequency market-maker will buy and then quickly sell it in another venue to another high-frequency trader, until the trade eventually finds its way to a final longer-term buyer.
They are known as "last looks", and were intended to protect market makers and clients from predatory high-frequency traders, who were using superfast computers and data connections to jump ahead of everyone else.
Securities & Exchange Commission rules on proposals designed to discourage high-frequency traders from stepping ahead of active managers, according to BNY Mellon's ETF Services group.
Summary: In-house trading algorithms, the life blood of quantitative hedge funds and high-frequency traders, are being targeted by cyber criminals wanting to sell them on to unscrupulous traders.
AG Eric Schneiderman said that he was planning to broaden the scope of a lawsuit already filed against the bank that accused it of using the secretive trading exchanges, 'dark pools,' to bestow unfair advantage to some high-frequency traders at the expense of other clients.

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